S&P 500 Futures are a great way to invest according to general market trends. Futures are a very interesting type of financial instrument. Index stock futures are among the more popular types of “exotic” financial instruments. Wondering how you can use S&P 500 futures, Dow futures, and other times of futures to build your wealth? If so, you’ve come to the right place.
Futures are perhaps most commonly used to trade commodities, such as grain or oil. However, traders can draw up a future contract for pretty much anything traded through a financial market.
If you’re not familiar with futures, we’ll offer a brief overview. Then we’ll outline how futures can be used to make money off of stock markets.
Futures Basics For Beginners
A future is an obligatory contract in which both the buyer and seller agree to sell/buy a specified commodity, product, or financial instrument at some future point in time. The quantity to be sold/bought, as well as the price at which the agreed upon good will be sold at, are both pre-determined.
This might sound confusing, but really a futures contract is very simple and straight forward. If you buy a futures contract you’re basically drawing up a contract to buy something at a future point in time for a preset price and in a preset quantity. The seller is likewise agreeing to meet the terms of the contract.
Usually, the price for a future is based on current market conditions as well as expectations for how much the good will be worth in the future. In the case of S&P 500 futures, the price will be influenced by how well the s and p 500 is doing right now, as well as how investors think the s&p will do in the coming months. The same is true for DJIA futures and NASDAQ futures.
Futures and Market Indices
Some investors don’t like analyzing and predicting individual stocks, but instead would prefer to project market movements. Arguably, predicting the movements of economies as a whole is actually easier than predicting the developments and movements of individual companies. Although obviously that depends on the view and skills of the individual investor.
One way you can invest in markets is by buying futures that are tied to market indices. You can buy futures for the DJIA, s and p 500, NASDAQ, and other indices. You can even buy futures for foreign indices, such as the German DAX, French CAC 40, or the UK’s FTSE 100. The most widely traded index, however, is usually considered the S&P 500, so make sure you give that one a close look.
This will allow you to focus on predicting market trends, rather than the trends for individual companies. For example, if you believe that the economy is about to fall into a recession, whereas most other people are predicting expansion, you could short-sell S&P 500 and Dow futures. If your prediction turns out to be correct, you’ll likely make a lot of money.
Index-linked futures are a great option for many traders. Indices tend to be more stable than individual companies too. This means that investing in index-linked financial instruments can often be lower in risk than other types of investments.
Wrapping Up: Make Sure You Study Up
If you’re looking to invest in futures you should make sure you do some homework first. Predicting market movements may seem easier to grasp than predicting the movements in single stock companies. Both, however, are quite the challenge. A little bit of knowledge, however, can make a huge difference.
There are also many tools you can use to conduct research on futures, such as Bloomberg Futures. There are also other exotic options for investing out there. An example would be VXX, a volatility linked financial investment vehicle. Make sure you consider all of the different options when making investment choices.
Anyone with a little bit of money can invest. Given how stock markets have performed historically, some wise investments now could pay off in a huge amount of wealth in the future. So make sure you start building your financial prosperity today!